European Commission’s Anticipation and Guidelines for SEP Licensing Practice

While the patent policies of standard developing organizations (SDOs) are majorly for standard setting processes, the European Commission (EC) released a guideline for standard-essential patent (SEP) licensing practices on 29 November 2017. By the guideline the EC calls on all the relevant stakeholders to contribute to a balanced, smooth and predictable framework for SEP licensing. EC’s proposals are on the following three main areas:

Transparency on SEPs exposure should be increased

The accessibility and quality of the SEP databases maintained by the SDOs should be improved and become more user friendly. Under the current SEP licensing practice, implementers carry heavy burden to check the relevance and essentiality of the declared SEPs. To solve this problem EC suggests that patent holders provide more up-to-date and precise declarations by reviewing the relevance of their declared SEPs at the time of the adoption of the final standard and when the final grand decision of a SEP is taken. A higher degree of scrutiny on essentiality claims is necessary. An independent party would be introduced to perform this task. Patent offices are natural candidates.

Clear valuation methods and the definition of FRAND

EC stresses that the value of a SEP should be the intrinsic value of the patented technology excluding any additional value resulting from the inclusion of the patent into the standard. The value is irrespective of the market success of the end-product. When calculating the royalty rate parties should consider a reasonable aggregate rate or cumulative rate for the standard rather than define each individual SEPs in isolation. This is to avoid royalty stacking.

EC will set up an expert group to gather industry practice and additional expertise on FRAND licensing with the aim to increase accessibility of experience, expertise and know-how and reduce duplicated research efforts for the public.

Predictable enforcement environment for SEPs

The main debate under this topic is availability of injunctive relief. The court can decide to grant or deny a request of injunctive relief to punish the party who behaves in a non-FRAND way and safeguard the interests of the party who maintains FRAND behaviors. In order to assess a FRAND offer and an appropriate counter-offer, EC believes ‘clear explanations are necessary on: the essentiality for a standard, the allegedly infringing products of the SEP user, the proposed royalty calculation and the non-discrimination element of FRAND.’